NOTE 9: INTANGIBLE ASSETS

Intangible assets relate mainly to acquired business operations. These assets consist of the acquisition fair value of certain identifiable intangible assets acquired and goodwill. Goodwill represents the excess of the purchase price over the fair value of assets acquired less liabilities assumed.

Intangible assets consist of the following (dollars in thousands):

	As of September 30, 2014
	Gross Carrying Amount		Accumulated Amortization		Weighted Avg. Amortization Period
Amortizable Intangible Assets:
Student Relationships	$	80,591	$	(79,224)	(a)
Customer Relationships		3,561		(1,171)	12 Years
Non-compete Agreements		2,483		(2,013)	5 Years
Curriculum/Software		3,110		(2,351)	5 Years
Outplacement Relationships		3,900		(1,569)	15 Years
Clinical Agreements		530		(44)	15 Years
Trade Names		5,612		(4,916)	8.5Years
Total	$	99,787	$	(91,289)
Indefinite-lived Intangible Assets:
Trade Names	$	40,454
Trademark		1,645
Ross Title IV Eligibility and Accreditations		14,100
Intellectual Property		13,940
Chamberlain Title IV Eligibility and Accreditations		1,200
Carrington Title IV Eligibility and Accreditations		67,200
AUC Title IV Eligibility and Accreditations		100,000
DeVry Brasil Accreditation		41,583
Total	$	280,122

(a)

The total weighted average estimated amortization period for Student Relationships is 6 years for Faculdade Boa Viagem ("FBV"), 5 years for Centro Universitario do Vale do Ipojuca ("Unifavip") and 4 years for AUC.

	As of September 30, 2013
	Gross Carrying Amount		Accumulated Amortization
Amortizable Intangible Assets:
Student Relationships	$	81,619	$	(76,130)
Customer Relationships		3,554		(813)
Non-compete Agreements		2,517		(1,859)
Curriculum/Software		5,648		(4,424)
Outplacement Relationships		3,900		(1,309)
Trade Names		5,838		(4,828)
Clinical Agreements		585		(10)
Total		103,661		(89,373)

Indefinite-lived Intangible Assets:
Trade Names	$	40,894
Trademark		1,645
Ross Title IV Eligibility and Accreditations		14,100
Intellectual Property		13,940
Chamberlain Title IV Eligibility and Accreditations		1,200
Carrington Title IV Eligibility and Accreditations		67,200
AUC Title IV Eligibility and Accreditations		100,000
DeVry Brasil Accreditation		45,152
Total	$	284,131

Amortization expense for amortized intangible assets was $0.8 million and $1.6 million for the three months ended September 30, 2014 and 2013, respectively. Estimated amortization expense for amortizable intangible assets for the next five fiscal years ending June 30, by reporting unit, is as follows (dollars in thousands):

Fiscal Year	AUC		Becker		DeVry Brasil		Carrington		Total
2016	$	387	$	928	$	943	$	260	$	2,518
2017		-		893		610		260		1,763
2018		-		628		299		260		1,187
2019		-		356		163		260		779
2020		-		356		163		260		779
Thereafter		-		698		414		1,096		2,206

All amortizable intangible assets except Student Relationships are being amortized on a straight-line basis. The amount being amortized for Student Relationships is based on the estimated progression of the students through the respective AUC, FBV and Unifavip programs, giving consideration to the revenue and cash flow associated with both existing students and new applicants.

Indefinite-lived intangible assets related to trademarks, trade names, Title IV eligibility, accreditations and intellectual property are not amortized, as there are no legal, regulatory, contractual, economic or other factors that limit the useful life of these intangible assets to the reporting entity.

In accordance with U.S. GAAP, goodwill and indefinite-lived intangibles arising from a business combination are not amortized and charged to expense over time. Instead, these assets must be reviewed annually for impairment or more frequently if circumstances arise indicating potential impairment. This annual impairment review was most recently completed on May 31, 2014. As of the May 31, 2014 impairment review, there was no impairment loss associated with recorded goodwill or indefinite-lived intangible assets for any reporting unit, as estimated fair values exceeded the carrying amounts.

Management considers certain triggering events when evaluating whether an interim impairment analysis is warranted. Among these would be a significant long-term decrease in the market capitalization of DeVry Group based on events specific to DeVry Group’s operations. Deteriorating operating results and current period and projected future operating results that negatively differ from the operating plans used in the most recent impairment analysis are also triggering events that could be cause for an interim impairment review. In its analysis of triggering events management also considers changes in the accreditation, regulatory or legal environment; increased competition; innovation changes and changes in the market acceptance of our educational programs and the graduates of those programs, among others. Management concluded that no triggering event had occurred during the first quarter of fiscal year 2015.

This interim triggering event analysis was based, in part, on the fact that the estimated fair values of DeVry Group’s reporting units exceeded their carrying values by at least 24% as of the end of fiscal year 2014, except that of Carrington where the excess was 5%. The estimated fair values of the indefinite-lived intangible assets exceeded their carrying values by no less than 13% as of the end of fiscal year 2014.

Though the DeVry University reporting unit experienced a decline in revenue in the first quarter of fiscal year 2015 compared to the year-ago quarter, management did not believe business conditions had deteriorated such that it was more likely than not that the fair value was below carrying value for this reporting unit or its associated indefinite-lived intangible assets during the first quarter of fiscal year 2015. At DeVry University, which carries a goodwill balance of $22.2 million and intangible assets of $1.6 million, revenue declined by approximately 12% from the year-ago quarter but operating earnings before special charges improved by more than $5.0 million from the year-ago quarter and were in-line with management’s expectations contained in the fiscal year 2015 operating plan. These results were achieved through an emphasis on cost control to offset a decline in revenue. The revenue decline at DeVry University was primarily the result of a decline in undergraduate student enrollment and graduate coursetakers due to lower demand among the university’s target segment of students, believed to be driven by heightened competition, the availability of lower cost degrees, perceptions of the value of a college degree and increased reluctance to take on debt. To improve performance, management continues to execute a turnaround and transformation plan at DeVry University which includes:

Attracting the right students into strong programs;

Reducing DeVry University’s cost structure, while striving to maintain and even enhance our service to students;

Regaining DeVry University’s technology edge; and

Developing and supporting the team to drive execution.

The plan starts with our programmatic focus. This means ensuring our programs are designed to best meet the needs of our students and employers and better communicating the programs’ value propositions to the market. DeVry Group is also exploring methods to increase the flexibility of its programs to lower the overall cost of education to its students. This programmatic focus is designed to improve student outcomes.

Management is building teams to support the programmatic focus and increase decision-making speed. Management has narrowed its programmatic verticals to three: Business & Management, Engineering & Information Sciences; and Emerging Programs. Each vertical will have a focused team which will have responsibility for enrollment, market research, program features and quality, and successful student outcomes.

DeVry University’s plan to stabilize enrollment includes pricing optimization. A key element of pricing optimization is the strategic use of scholarships to enhance the value proposition we provide our students. DeVry University scholarships have two objectives: attracting new students and improving student persistence. Management was disappointed in the performance of the Career Catalyst Scholarship in the September 2014 session and is adjusting its scholarship strategy. An example of this scholarship initiative is DeVry University’s new degree-completer scholarship which will be offered to students who have prior college credits but no degree. Management believes DeVry University’s focused degree-completer programs along with a pricing strategy that meets their needs will help these students pursue their goals of finishing their education.

Tuition rates for fiscal year 2015 at DeVry University remain unchanged from those of fiscal year 2014. Further, management implemented the DeVry University Fixed Tuition Promise. This is a guarantee to each DeVry University student that his or her tuition rate will not increase as for long as he or she is a continuing student. Also, beginning in July 2014, the number of credit hours a student must take per session to receive the full-time rate is increased from 7 hours to 8.

Management is also finding ways to be more effective in marketing and recruiting efforts to reduce the total cost per new student. DeVry University’s marketing strategy is shifting toward more digital and social channels and its website.

In aligning the cost structure, management is focused on increasing efficiencies. Over the past year DeVry University has reduced costs through staffing adjustments; managing open positions; consolidating locations; optimizing course scheduling to better utilize classrooms; and lowering course materials costs. Management made the decision to close or consolidate certain DeVry University campuses while balancing the potential impact on enrollment and student satisfaction. In the first quarter of fiscal year 2015, DeVry University announced 9 location consolidations which are pending regulatory approval. This is in addition to the 5 locations that were closed and 19 locations that were consolidated in fiscal year 2014. There are plans for additional consolidations in the remainder of fiscal year 2015.

Management believes its planned operational strategies will stabilize the negative enrollment trends over the next several years. Cost reduction initiatives since fiscal year 2012 have reduced operating expenses and shifted costs to a more variable model. However, if operating improvements are not realized, all or some of the goodwill could be impaired in the future. The impairment review completed in the fourth quarter of fiscal year 2014 indicated the fair value exceeded the carrying value of the DeVry University reporting unit by 24%. Due to the effects of continually declining enrollment, this excess margin has been rapidly declining in recent periods. A 10% decrease in the fiscal year 2015 projected operating income used in this analysis would result in no less than a 21% premium of fair value over carrying value. Should business conditions at DeVry University deteriorate to the point where the carrying value of this reporting unit exceeds its fair value, then goodwill and intangible assets could be impaired. This could require a write-off of up to $23.8 million.

Determining the fair value of a reporting unit or an intangible asset involves the use of significant estimates and assumptions. Management bases its fair value estimates on assumptions it believes to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ from those estimates which could lead to additional impairments of intangible assets.

At September 30, 2014, intangible assets from business combinations totaled $288.6 million, and goodwill totaled $514.2 million. Together, these assets equaled approximately 38% of total assets as of such date, and any impairment could significantly affect future results of operations.

The table below summarizes goodwill balances by reporting unit as of September 30, 2014 (dollars in thousands):

Reporting Unit	As of September 30, 2014
American University of the Caribbean	$	68,321
Ross University School of Medicine and Ross University School of Veterinary Medicine		237,173
Chamberlain College of Nursing		4,716
Carrington College		98,784
DeVry Brasil		50,082
Becker Professional Education		32,948
DeVry University		22,196
Total	$	514,220

The table below summarizes goodwill balances by reporting segment as of September 30, 2014 (dollars in thousands):

Reporting Segment:	As of September 30, 2014
Medical and Healthcare	$	408,994
Business, Technology and Management		22,196
International and Professional Education		83,030
Total	$	514,220

The table below summarizes the changes in the carrying amount of goodwill, by segment as of September 30, 2014 (dollars in thousands):

	Medical and Healthcare		Business, Technology and Management		International and Professional Education		Total
Balance at June 30, 2012	$	462,088	$	22,196	$	65,677	$	549,961
Acquisitions		-		-		16,120		16,120
Impairments		(53,094)		-		-		(53,094)
Foreign currency exchange rate changes						(4,050)		(4,050)
Balance at June 30, 2013	$	408,994	$	22,196	$	77,747	$	508,937
Acquisitions		-		-		9,675		9,675
Foreign currency exchange rate changes		-		-		1,267		1,267
Balance at June 30, 2014	$	408,994	$	22,196	$	88,689	$	519,879
Foreign currency exchange rate changes		-		-		(5,659)		(5,659)
Balance at September 30, 2014	$	408,994	$	22,196	$	83,030	$	514,220

The decrease in the goodwill balance from June 30, 2014 in the International and Professional Education segment is the result of changes in the value of the Brazilian Real and British Pound Sterling as compared to the U.S. dollar. Since DeVry Brasil and Becker Europe goodwill is recorded in each group’s respective local currency, fluctuations in the respective local currency’s value in relation to the U.S. dollar will cause changes in the balance of this asset.

The table below summarizes the indefinite-lived intangible asset balances by reporting segment as of September 30, 2014 (dollars in thousands):

Reporting Segment	As of September 30, 2014
Medical and Healthcare	$	204,700
International and Professional Educational		73,777
Business, Technology and Management		1,645
Total	$	280,122

Total indefinite-lived intangible assets decreased by $5.2 million from June 30, 2014. The decrease is the result of changes in the value of the Brazilian Real as compared to the U.S. dollar. Since DeVry Brasil intangible assets are recorded in the local Brazilian currency, fluctuations in the value of the Brazilian Real in relation to the U.S. dollar will cause changes in the balance of these assets.